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It’s Time for Real Time Settlement

blog.robinhood.com

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Re: It’s Time for Real Time Settlement

#281

Post by swampthing »

JumpCrisscross wrote: post #271
swampthing wrote: post #258

Earlier quoted context omitted.

I don't think that's true. They raised the additional capital so that their customers could continue buying shares of those 8-50 companies. Had they not raised that capital, they would have just had to keep blocking those buys, but they would have been fine otherwise.

> Had they not raised that capital, they would have just had to keep blocking those buys, but they would have been fine otherwise This is not my understanding. The 3AM phone call was a collateral call. That covers existing trades. As a clearing broker, when they sent in the trade they created the liability.

That sounds plausible, but even then, if Robinhood couldn't meet the new deposit requirements, I think the existing trades just wouldn't settle (and obviously they wouldn't be accepting new ones)? I'm not seeing how Robinhood would have gone bankrupt in such a situation.

Re: It’s Time for Real Time Settlement

#282

Post by kasey_junk »

gher-shyu3i wrote: post #278
mattnewton wrote: post #262

Earlier quoted context omitted.

I also don’t think short selling as it is currently practiced is a net social good, but I don’t know anything about it’s importance in the agricultural sector. What does short selling provide there?

From what I understood from his comment, he was worried about how shorting would cause the collapse of the agricultural sector, so agreeing with you that it's a bad and dangerous practice.

No the opposite. I believe that modern agriculture would collapse without short positions.

I concede this is largely an act of faith on my part.

Re: It’s Time for Real Time Settlement

#283

Post by kasey_junk »

mattnewton wrote: post #276
kasey_junk wrote: post #259

Earlier quoted context omitted.

That’s a fine position to take so long as you recognize the vast majority of long money also doesn’t go to the companies coffers unless the do another offering. Your argument isn’t a moral one.

Much long money is absolutely used by the company indirectly; they can use their stock like a currency to raise funds with debt, pay employees, acquire companies with stock, etc. Thats hopefully a virtuous cycle where people do more stuff that creates value. I don’t mean to make a moral argument, just question the need for short positions. If the company is truly bad their shares should deflate as demand deflates, no…

That debt, acquisition and paying of employees is fraud. You are just pushing the risk onto those other entities with poor price discovery.

Re: It’s Time for Real Time Settlement

#284

Post by kasey_junk »

danhak wrote: post #272
u10 wrote: post #266

Earlier quoted context omitted.

How does that make any sense? If the stock was growing 15% year over year without any indication that there are any issue, why would any investor want to provide any information or do any research on why that isn't the case? If an investor knew that there was fraud going on they would probably keep it to themselves and simply invest in the company anyways, because the financial incentive is there.

In your hypothetical example, a stock is going up and up, and I suspect it might be fraudulent, and you believe I have no incentive to pull my money out before the house of cards collapses? Getting my money out is all the incentive I need! I bet plenty of Theranos investors would've loved to do exactly that. And there was no shorting involved in that company.

The question they are asking is if it’s going up & up what will ever cause it to go down?

The standard answer is the government. Which is fine but reduces a moral position to an operational one.

Re: It’s Time for Real Time Settlement

#285

Post by jimmydorry »

JumpCrisscross wrote: post #166
kridsdale1 wrote: post #156

Earlier quoted context omitted.

Vlad said live on air (in Clubhouse) in conversation with Elon Musk on Sunday that the clearinghouse increased their requirements from (IIRC) 30% to 100%, and that the formula for calculating that was "not transparent" and had a component that was "a multiplier based on their opinion". RH negotiated with them all Thursday last week and reduced the required payment from $3B to ~$0.7B. So it sure seems like the DTCC ma…

> had a component that was "a multiplier based on their opinion" I'll chalk this up to colloquialism. The DTCC has very little discretion in what they do. That's why they're trusted to do it. The "opinion" component could be a reference to their line of credit banks, who adjust the rates they charge the DTCC based on their varied risk models. There is a valid argument that there isn't as much transparency in that lay…

To add to your comment:

In his chat with Elon Musk, the RH CEO said that Robinhood was given the $3B bill at 3am in the morning, and got it down to $0.7B after saying they would only allow closing out of positions for "meme stocks".

By his own words, RH took the first step to "change the game", which I am not really seeing discussion of anywhere. The DTCC certainly did not change any rules for them, but this still feels unprecedented.

Re: It’s Time for Real Time Settlement

#286

Post by totalZero »

tylerhou wrote: post #251
Miner49er wrote: post #78

Earlier quoted context omitted.

> Why do you think the stock was “over shorted” apart from the fact that short interest is generally not that high? It was the highest shorted stock on the market. That is "generally not that high"? I think the fact that retail investors were able to cause a short squeeze on it, that cost shorts many billions of dollars, is an indication that it was over shorted. > Or — what do you think are the bad consequences of “…

Short squeezes are not good for the market, period, but they only happen in extraordinary circumstances. And actively encouraging people to cause short squeezes in order to reduce the potential for future short squeezes seems... counterproductive. If you want to reduce the number of people shorting a stock, creating artificial short squeezes would work, yes, but then I again ask: why do we want to prevent people (or…

> Short squeezes are not good for the market, period

This is an opinion. To briefly articulate some arguments that take the other side:

Short squeezes are a disincentive for hedge funds to take undisclosed bearish positions in otherwise healthy companies, and for options dealers to sell cheap call options on those companies. They also increase equity value for shareholders. A squeeze can reduce the debt load for a company by incentivizing bondholders to convert debt into equity, and the profit potential thereof may help a distressed company issue convertible bonds to raise funds.

Re: It’s Time for Real Time Settlement

#287

Post by [deleted] »

kasey_junk wrote: post #284
danhak wrote: post #272

Earlier quoted context omitted.

In your hypothetical example, a stock is going up and up, and I suspect it might be fraudulent, and you believe I have no incentive to pull my money out before the house of cards collapses? Getting my money out is all the incentive I need! I bet plenty of Theranos investors would've loved to do exactly that. And there was no shorting involved in that company.

The question they are asking is if it’s going up & up what will ever cause it to go down? The standard answer is the government. Which is fine but reduces a moral position to an operational one.

[deleted]

Re: It’s Time for Real Time Settlement

#288

Post by kbar13 »

stouset wrote: post #253
kbar13 wrote: post #130

Earlier quoted context omitted.

i have a vanguard account with most of my investments, with like 10% in robinhood for gambling. the way i think about it is vanguard works fine (theres some bugs but not end of the world). but it is not optimized for timed trades. it works well enough for me to put in a big chunk of money on a recurring basis or liquidate funds for use elsewhere. robinhood allows me to easily trade off of market emotion or do options…

Maybe—just maybe—we shouldn’t be encouraging the general public to trade options? Triply so with margin accounts? This is isn’t “democratizing finance”. It’s literally just a wealth transfer from the poor to the rich. It’s putting fish at a poker table full of professional sharks backed by billions of dollars and teams of analysts, and encouraging the fish to put their life’s savings on table. Index funds are boring…

i partially agree with you. robinhood is ran by rich guys who make money when people use the app - regardless if the traders make money or not. and i agree that index funds are a great way to get exposure to the long term growth of the economy.

however, giving people the ability to trade on margin and options just like the big shops is an equalizer. robinhood wasn't lying there. the problem really is:

1) education

there's a significant inequality in knowledge. the average person isn't taught market fundamentals, theory, or the technical details of how stuff works (how does a call work? what does T+2 mean?)

2) capitalism

the market is tipped in the favor of the big guys, because currently the financial market is incentivized to keep these guys not just afloat but jacked up. big gains = everyone is happier. as such, very smart people, like physicists, are attracted to the financial sector where they are paid the big bucks to make insanely rich people even wealthier, instead of working in academia or an industry where they can contribute their abilities to bettering the entire world. i.e. working on green energy or reducing environmental impact or improving productivity

Re: It’s Time for Real Time Settlement

#289

Post by paulpan »

JumpCrisscross wrote: post #120

Real time equities settlement and clearing is a terrible idea. It sounds great. But it breaks a lot of good stuff. I'm surprised the CEO of a brokerage is advocating for it. (The article is a bit loose with the terms settlement and clearing. Again, surprising from the CEO of a company that almost got taken out by internal clearing failures.) If you only think about the American stock market from the perspective of a…

110% agreed. This is a near-textbook example of "just because you can doesn't mean you should".

The simple reason in this age of high frequency trading and massive amounts of money being moved around, a tiny arbitrage opportunity could instantly be magnified and trigger a system (market) crash. Whereas these crashes can and do occur today, the non-realtime aspect of settlement and clearing mitigates to a large extent. See the 2010 flash crash example: https://en.wikipedia.org/wiki/2010_flash_crash

In addition, I'm dubious of how "real time" this proposal will turn out to be. For one there are a number of dependencies and steps that need to be fully aligned to expedite from end of day to something faster. True real time systems are a rarity - most of the time the latency is still measured in minutes or hours. A flashy term that tech companies like to throw around.

Also this feels like a diversion tactic from the implosion of Robinhood of the company from last week's debacle. For those unaware, RH also put limits on AMD stock to be traded - what the heck?!

Re: It’s Time for Real Time Settlement

#290

Post by [deleted] »

kasey_junk wrote: post #280
mattnewton wrote: post #262

Earlier quoted context omitted.

I also don’t think short selling as it is currently practiced is a net social good, but I don’t know anything about it’s importance in the agricultural sector. What does short selling provide there?

All futures contracts contain a “short” position. In its most basic a producer of the commodity agrees to sell in the future at a certain price now. This locks in their profit but is only useful to them if they are trying to hedge the price being worse in the future. They are borrowing a future position to make it tenable to produce now. Without it most agriculture would be too risky to engage in (without a governmen…

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